NVIDIA Q1 2023 Investment Note

All you need to know about this earnings season

Attitude: NVIDIA delivered a strong quarter driven by both Data Center and Gaming in a challenging macro environment. NVIDIA achieved a record revenue of $8.3 billion, up 8% sequentially and up 46% y/y. Data Center has become NVIDIA's largest market sector, and NVIDIA sees continued strong momentum going forward. The underlying dynamics of the Gaming industry are solid, net of the situation with COVID lockdown in China and Russia. The rest market is robust and NVIDIA expects the Gaming dynamics to be intact.

Guidance: NVIDIA assumes a decline of approximately $500 in million revenue relating to Russia and China COVID lockdowns. NVDA expects strong sequential growth in Data Center and Automotive to be more than an offset by the decline in Gaming. Revenue is expected to be $8.1 billion. GAAP and non-GAAP gross margins are expected to be 65.1% and 67.1%. GAAP operating expenses are expected to be $2.46 billion. Non-GAAP operating expenses are expected to be $1.75 billion. The capital expenditures are expected to be about $400 million to $450 million.

Product: Gaming Revenue of $3.6 billion rose 6% sequentially and 31% y/y, powered by the GeForce RTX 30 Series. The RTX 30 Series has been NVDA's best Gaming product cycle ever. RTX has helped drive a sustained expansion in the higher-end platforms and installed base with a significant runway ahead. End demand remained solid though mixed by region, and market in America remained strong. NVDA's DRIVE O-RAN SoC is currently in production and will kick off a significant product cycle with auto customers ramping in Q2. NVDA's networking revenue benefits from growing demand for DGX super pods and cross-selling opportunities.

NVIDIA AI: The effectiveness of deep learning AI continues to stand. NVIDIA is ramping the next generation of AI infrastructure chips and platforms, like Hopper GPU, BlueField DPU, NVLink, etc. NVDA is also ramping its system and software industry partners to launch Grace, the first CPU. With NVIDIA AI, Omniverse, and new CUDA acceleration libraries, these initiatives will significantly advance AI.

Colette Kress: NVIDIA Ampere has been a remarkable architecture, and there are many areas where we continue to see strength and growth in both the sell-through and what is added to that channel. But in total, Q2 Gaming will decline from Q1. As we work through some of these lockdowns in China, which are holding us up. But overall, the demand for Gaming is still strong. We still expect end demand to grow year over year in Q2.

Jensen Huang: Our Data Center demand is strong and remains strong. Hyperscale and cloud computing revenues have grown significantly. It's doubled year over year. We are seeing strong adoption of A100, which is unique and a universal accelerator. This is one of the great innovations as we extended GPU from graphics to CUDA to Tensor Core GPUs. Moreover, the thousands of companies that are using NVIDIA AI in the cloud and all of these are driving our Data Center's growth.

Colette Kress: The current China lockdowns have influence on both supply and demand sides. It puts a lot of pressure on logistics that were already under pressure. From a demand perspective, it has been head from the gaming side. Some large cities are in complete lockdown, focusing on other essential things for the citizens there. So, it's impacting our demand. But we do believe that China will come out of COVID, and the need for our products will come back. In the case of Russia, we're not selling to Russia. We had announced earlier last quarter. But there were plans and Russia has been a part of our overall company revenue of probably 2%.

Colette Kress: Our purchase obligation has two major things to consider. One, for the first time, we are prepaying to make sure that we have supply and those commitments are long-term. Additionally, many of our purchase obligations are for long lead time items that are a must for us to procure to meed our end market. A good percentage of purchase commitments is for our Data Center business that we are procuring to make sure we can feed the demand both in the upcoming quarters and further. Areas in terms of where we are still a little bit supply-constrained are networking. Our demand is quite strong.

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